Wells Fargo to Cut No Ratio and No Doc Programs

Later this week, Wells Fargo Home Mortgage will implement further loan program cuts to mitigate risk in the deteriorating home lending market.

The massive mortgage lender plans to dump both “No Ratio” and “No Doc” loans from its shrinking portfolio, while reducing the maximum loan amount from $6 million to $2 million.

“No Ratio” is a loan documentation type that allows borrowers to withhold income information on a loan application while verifying assets.

The result is a lack of a debt-to-income ratio, making it easier for borrowers to qualify for a mortgage without worrying about complicated income schedules.

But like many other limited documentation programs, it has been handily abused to help homeowners circumvent difficult qualification standards.

“No Doc” will also be curtailed, the now infamous doc type that doesn’t require income, asset, or employment verification, sometimes referred to as a “NINJA loan”.

The risk in these types of loans goes without saying, despite the typically conservative loan-to-value caps.

I’ve also heard that Wells Fargo plans to up the rate on all home equity loan products by an eighth of a percent tomorrow, though today’s Fed rate cut will push interest rates lower on programs tied to the Prime Rate.

Just recently Wells Fargo told employees it would be removing all 100% financing programs except its Home Opportunity 80/20, which mirrors the 100% agency products currently available via Fannie and Freddie.

The lender already announced it would be removing all Alt-A minus programs from its portfolio, which is essentially anything below a 680 credit score that is not full doc.

Look for more lenders to follow suit until things improve on the secondary mortgage market.